Buying Logic: Cost Savings and Product Differentiation

There was a time, in the not-so-distant past, when airlines were very intentionally in complete control of almost every aspect of their processes and products. Aircraft were customized and manufacturers, followed by outfitters, made certain that models of a similar type were actually quite nonstandard. Similarly, computer systems, each doing essentially the same tasks, were unique to each major carrier and enabling them to interact was an undertaking involving considerable complexity and expense.

Then there were dedicated facilities, equipment, lounges, and disposables ranging from brochures to boarding cards. Once onboard, the catering often was supplied by in-house facilities--certainly at the major stations online. The drive to gain differentiation knew few bounds. In the 1990s, Swissair took the entire North American management team to Zurich to see the new china trayware that was being introduced along with a completely new and carefully researched menu, believing that even the shape of the dishes was a decision criterion for passengers.

Maintenance usually was done by the airline's own staff, as well as other tasks such as dispatch and even weather planning. This kind of redundancy, even among mid-level carriers, was viewed as completely normal behavior and when tasks were outsourced, ground handling for instance, airlines generally had some of their own staff on site to oversee the process and ensure that any service particular to their brand was provided at every station.

That kind of oversight and direct control is rare in 2007. Large parts of operational and service functions are outsourced or entrusted to partners. At Los Angeles International's Tom Bradley Terminal, individual lounges are being replaced by shared alliance facilities and one for everyone else. In an age of rampant codesharing and price-driven purchases, the particularities of brand have been diminished. A recent study of business travelers by SAS found that "brand loyalty . . . ranked low on the list of priorities when choosing a carrier; whereas choice of airport was the primary motivator."

I would suggest that in the earlier model, procurement of specialized goods was a significant part of the marketing plan, aiding directly in the development of differentiation and brand loyalty. However, it was expensive, and as consumers began to experience perfectly adequate service at a fraction of the cost, many decided that the price paid for uniqueness was too steepand in many cases unnecessary.

Perhaps now the primary role of procurement is not so much to provide the particular items that may distinguish a brand but rather to reduce cost further, thus "procuring" the passenger with the market's prime lure: A competitive price. Goods and services are bought simply to facilitate that basic transaction, a trend certainly visible in the short-to-medium-haul economy class markets.

However, in some ways it also is evident in the battle for business class travelers. The uniqueness of each carrier's offer is defined more by the "lie-flatness" of the seat than by the particular and singular nature of other service components. There is an expectation that the food will be acceptable, that some form of IFE will be available and that the drinks will be free. The real arbiter now is the seat and all the rest often is secondary. This is not to diminish the care and thought that goes into other service aspects but rather that the carriers themselves have pretty much bracketed the competitive fight around space onboard and the physical structure that defines that space.

Likewise, purchasing and procurement have been realigned with a goal of fiscal constraint rather than radical differentiation. In a marketplace where it is difficult to find consumers who would value a meal in lieu of a low fare, selling the uniqueness of the plate seems quaint.